If you want to create categories for your Blogger blog, give labelr a try. I haven't had any personal experience with labelr (yet), but judging by the creator's blog, it seems to work very well.
To create categories for your Blogger blog, seemes indeed a good solution, but they don't accept new "beta testers" at this moment it seems. But I would love to try it on my http://africanantiques.blogspot.com/ African Art blog. Does someone know other similar tweaks? I think there must be other labels or tags systems around.